How going cashless channels money to India’s most vulnerable

By Ming En Liew

Arif Khan, Chief Digital Officer of the National Payments Corporation of India, shares how digital payment is levelling the field for financial access.

Villagers in rural Kenya found themselves unable to buy groceries when the country faced a shortage of cash during the pandemic. They resorted to making transactions using an alternative form of currency – credits which citizens can redeem for services like cleaning.

India faces the opposite problem. With cash dominating their economy, citizens are limited by physical notes. Receiving welfare aid becomes a cumbersome process, and sending money across the country becomes almost impossible.

Arif Khan, Chief Digital Officer of the National Payments Corporation of India (NPCI), shares how the country’s push for digital payments is improving financial inclusion across the nation.

Bringing aid to the vulnerable

Digital payment allows citizens to receive aid from welfare schemes, improving financial inclusion, says Khan. India’s e-RUPI scheme uses pre-paid digital vouchers to deliver aid to beneficiaries without the need for a card, digital payment apps, or internet banking access.

“Any government agency or corporation can generate e-RUPI vouchers, which are personalised for a specific purpose,” explains Khan. These vouchers are shared with beneficiaries via SMS or a QR code, which they can then redeem at any merchants who accept e-RUPI.

These vouchers give organisations a flexible way to deliver aid as they can be used for many different scenarios. For example, many corporations use e-RUPI to cover their employees’ Covid-19 vaccination and health checkups during the pandemic, says Khan.

Additionally, these vouchers maintain the privacy of beneficiaries as they need not share any personal details during redemption. Safer aid distribution is another perk as vouchers will first need to be authorised, and redemptions are trackable.

Digital payment was especially crucial for aid distribution during the pandemic. With physical contact being limited, the Indian government turned to digital aid distribution.

They did so through a direct benefit transfer platform, where the government could directly transfer funds to citizens’ bank accounts. These accounts are linked to each citizen’s unique identification number.

This ensures that the funds reach disadvantaged populations without being lost or delayed. During the pandemic, the Indian government made direct transfers ranging from an average of INR 500 to 2000 every month to beneficiaries through the platform, Khan highlights.

Servicing the underbanked 

“It is important to drive the adoption of digital payments in the rural hinterland,” emphasises Khan. Digital payments can help the previously underbanked populations access financial services.

To do so, India created a scheme that entitles every citizen to a bank account. These accounts allow them to earn interest, purchase insurance, and receive subsidies and aid directly from the government. They also receive a debit card for digital payments.

Women in particular benefit, with 55 per cent of account holders under the scheme being women, reveals Khan.

Additionally, the Indian government created a mobile service for citizens to use banking services offline. Citizens simply dial *99# on their mobile phones to access financial services, such as bank transfers or checking their account balance.

This service is also available on mobile phones which are not smartphones, making it accessible to the population.

An Indian citizen was able to help his wife receive prompt medical treatment with the help of this mobile service, an article from NPCI’s blog stated. The mobile service enabled his daughter to immediately transfer the funds needed for his wife’s treatment. This is despite her living a 30 hour-drive away.

Detecting fraud with AI and machine learning

The importance of having a “brisk” cybersecurity system is critical as more customers move to digital banking, says Khan. NPCI employs tech such as AI to safeguard India’s digital financial services from fraud and financial crimes.

AI is able to help banks identify transaction patterns and detect potential fraudulent behaviour.

It can also analyse fraud cases across multiple financial institutions to identify potential vulnerabilities in the financial sector. This then informs financial institutions to correct these vulnerabilities and encourages the finance sector to work together to protect citizens, says Khan.

NPCI is exploring blockchain to protect against financial fraud as well. Blockchain works by creating a permanent, public, and unalterable record of financial transactions. This can reduce theft and financial fraud, wrote NPCI senior vice president Vishal Anand Kanvaty on NPCI’s blog.

For a country as large as India, digital payment becomes a much-needed bridge for financial inequality. These digital bridges don’t just link families across state lines, but also help the government better reach its people and give aid when needed.